Charles Morand
While browsing Cleantech News, I came across an interesting post on Energy Outlook on the lack of attention hydro power is receiving in the latest of round of policy efforts aimed at greening the U.S.’ energy supply and combating climate change.
Besides having been been scuffed at in Waxman-Markey, hydro power has effectively been ignored in the ARRA, receiving a measly $32 million, peanuts in comparison to the $786.5 million awarded to biofuels, the $350 million for geothermal power and the $117.6 million going to solar. Not mention the millions of dollars that will flow into wind power as a result of changes to the PTC allowing project developers to claim a 30% investment tax credit (ITC) instead, and to obtain direct cash grants in lieu of the actual credit.
What can $32 million get you in today’s large hydro power world? The latest North American project announcement that I am aware of is for a large-scale facility (1,550 MW) in the north of Canada forecasted to cost a total of $6.5 billion, or ~$4.2 million/MW installed. Since this is the north of Canada and far from population centers, suppliers of construction materials and the plants where much of the electrical hardware will be manufactured, let’s assume that this project will cost about 25% more than an equivalent project closer to civilization, or ~$3.2 million/MW. At that cost, $32 million gets you a stunning 10 MW of new hydro.
The $32 million is not for new capacity additions but rather for upgrades and improvements to existing facilities. Still, the figures above provide a rough idea of the economics of large hydro power today, and it’s safe to conclude that $32 million is peanuts, and that refusing to count large hydro toward the national RPS proposed in Waxman-Markey won’t exactly help.
This is unfortunate given that hydro’s share of total electricity production in the US and average capacity factor have been eroding over the past decade, no doubt in part due to the fact that most large hydro installations in the US are old and in need of upgrading.
Despite concerns over ecological impacts, hydro large and small can contribute positively to the energy mix in regions with good hydrological resources. As noted in the NYT article linked to above, the utility building the 1,550 MW installation in Canada plans to leverage this huge amount of storage capacity to help integrate into its grid 4,500 MW of new intermittent wind power coming online by 2015.
Of course, not all regions are blessed with the hydrological resource base necessary to achieve something on that scale, just like hydrothermal geothermal can only ever be developed in a few select areas. But where that resource does exist (e.g. Pacific Northwest), it should be exploited. Furthermore, expansions in transmission capacity could certainly facilitate the use of large hydro dam to store power from wind farms far away. Given the potential scale of environmental and economic impacts related to climate change, waging war on large hydro today based on concerns over fish habitat, as many high-profile environmental groups are doing, is like worrying about the air bag while driving straight for the edge of Grand Canyon.
Last April, while doing research on wood pellets, I came across a stock with material exposure to the large hydro equipment business, Andritz Group (ADRZF.PK). This company would likely be a major beneficiary of the kind of hydo revival needed in the U.S. However, $32 million is probably not going to get anyone at Andritz overly excited given that its hydro unit alone generated sales of ~$1.6 billion in 2008.
DISCLOSURE: None
